“Gold”

This tab brings together discussion of the main alternatives to current inward-looking, activist monetary policies.Robert’s recent articles on the need for an international monetary standard can be accessed here.

“Gold” is intended to serve as a category in which to place the debates about all the “sound money” options for reform.

History shows not only that there are alternatives to current ramshackle arrangements, but also that there are cycles in the way society defines and uses money itself.

Amidst spreading uncertainty, one thing is certain: that present arrangements will not endure. They are not compatible with globalised finncial markets. They are already in a state of advaced decay.

A Gold Standard?

Gold should be included in a review of options for the future of the world economy for several reasons:

Gold remains a trusted and popular store of value throughout the world

Because the supply of gold cannot be manipulated by governments, gold remains a benchmark for currency valuation.

The international gold standard remains the paradigm of an international monetary system. It provided stable exchange rates, and supported free trade and capital movements and the first age of economic globalisation.

Existing reserve currencies were built on a gold base

Rising financial powers historically have used gold to promote and underpin their roles as financial centres. The signs are that China is following suit.

It has been argued that “a gold standard is not without its flaws, but is vastly better than the unmanageable fiat system that replaced it” (Professor Kevin Dowd, Central Banking, November 2011). Dowd would go the whole hog and abolish central banks: he believes that we need “ a bona fide gold standard, a free gold market, no central banks, no exchange controls and the abolition of both the IMF and World Bank, neither of which has any place in a free market”.

For my part, I think there are preferable alternatives to gold. Yet gold has to be taken seriously. It has deep historical roots. if nothing is done to place the international monetary system on a firmer footing, the growing people’s rebellion against the mismanagement of money by the financial elite will gather momentum. People feel their trust has been abused.

There are other possible standards.

For example, world money might be anchored by:

Bundles of commodities

A rehabilitated dollar standard

A real SDR standard

Other proposals, such as Professor Robert Mundell’s idea of a North Atlantic Currency Area, would establish a standard covering more than 50% of world output.

I also argue that – if one insists on keeping independent central banks – the only monetary policy framework that can in principle provide long-term price stability under flexible exchange rates is a strict form of monetary control.